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AC551 Final Exam - Federal Taxes and Decisions

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Question;Keller;Graduate School of Management;AC551;Federal Taxes and Decisions;Final;Exam;TRUE-FALSE;QUESTIONS?CHAPTER 10;1. Terry Trumbull purchased a tract of land. In;order to have city water, he had to pay the water company $5,000 to extend the;water line to his property. The $5,000 cost is an addition to the basis of the;land.;2. When property that is subject to an existing debt;is purchased, the basis of the property is the amount of cash paid initially;plus the unpaid debt to which the property is subject.;3. The basis for nonbusiness property changed to;business use is the greater of the adjusted basis of the property or its fair;market value on the date it is converted to business use.;4. During 2011, Carl Crofts received a gift of;property having a fair market value of $25,000 at the time of the gift. The;donor?s adjusted basis in the property at the time of the gift was $21,000. The;donor paid a gift tax of $700 on the property. Carl?s basis in the property is;$21,700;5. In 2011, Tom Turner received a gift of property;that had a fair market value of $10,000 at the time of the gift. The donor?s;adjusted basis in the property at the time of the gift was $12,000. Tom?s basis;for computing depreciation is $12,000.;MULTIPLE;CHOICE QUESTIONS?CHAPTER 10;36. Leonard Lambert?s commercial building, which had;an adjusted basis of $500,000, was partially destroyed by fire. The fair market;value was $800,000 just before the fi re and $600,000 immediately after.;Leonard received $150,000 insurance proceeds and deducted a $50,000 casualty;loss. What is Leonard?s basis in the building before any repairs are made?;a. $300,000;b. $350,000;c. $450,000;d. $500,000;e. $600,000;37. Lem Lumberjack sells 100 shares (basis of;$5,000) of Redwood Corporation common stock on March 8, 2011, for $4,000. On;March 29, 2011, Lem purchases 50 shares of Redwood Corporation common stock for;$2,500. Lem?s recognized loss on the sale is;a. $1,000;b. $500;c. $1,500;d. $0;38. In 2011, Allen Anders sold an asset which cost;$70,000. Allen incorrectly claimed $40,000 depreciation over a five-year;period. He should have claimed $50,000 depreciation. What was the adjusted;basis when sold?;a. $0;b. $20,000;c. $30,000;d. $50,000;e. $70,000;39. Which of the following items is not a reduction;to the basis of an asset?;a. Depreciation;b. Assessments for maintenance of sidewalks;c. Cash rebate from manufacturer;d. Casualty losses;40. In 2011, Bob Brown?s aunt Barbara gave him a;house. At the time of the gift, the house had a fair market value of $193,000;the taxable gift was $180,000, and his aunt?s adjusted basis was $73,000. His;aunt paid a gift tax of $30,000 on the house. What is Bob?s basis in the house;for purposes of determining gain?;a. $73,000;b. $93,000;c. $180,000;d. $193,000;41. In May 2011, Automatic, Inc. sold land with a;basis to Automatic of $100,000, to Jack Jones, its 60%;shareholder, for $80,000. In July, Jack sold the;land to an unrelated party for $110,000. What is the amount of Jack?s;recognized gain?;a. $0;b. $10,000;c. $20,000;d.;$30,000;CHAPTER;10;80. On April 18, 2011, Jim Jenkins sold 300 shares;of Redwood Corporation common stock for $8,400. Jim acquired the stock in 2007;at a cost of $10,000. On May 9, 2011, he repurchased 150 shares of Redwood Corporation;common stock for $3,600 and held them until August 25, 2011, when he sold them;for $6,000. How should Jim report the above transactions for 2011?;81. Norman Nelson owns 1,000 shares of Newton Corp.;common stock which he purchased for $60,000 and later receives a nontaxable;preferred stock dividend of 300 shares of Newton preferred stock when the FMV of;the preferred was $100 per share and the FMV of the common was $90 per share.;What is the basis of the common and preferred shares after the dividend?;82. Ronald Rankin owns 1,000 shares of Royal Corp.;common stock with a basis of $30,000. He receives a 10 percent taxable stock;dividend when the FMV of each share of stock is $15. How much income does he have?;What is the basis in the new shares? When does the holding period of the new;shares begin? What is the basis in the old stock?;CHAPTER 11;41. Ed;Edmonds exchanged a business truck with an adjusted basis of $320,000 for;another business truck with a fair market value of $20,000, a boat with a fair;market value of $6,000, and $2,000 cash. What is the basis of the new truck?;a. $18,000;b. $20,000;c. $24,000;d. $30,000;e. $32,000;42. A fire;destroyed Carl Cramer?s business automobile. Carl originally paid $24,000 for;the automobile and up to the time of the fi re had been allowed $15,000 in;depreciation. Within three months the insurance company replaced the old;automobile with a new one which was worth $21,000. What is the basis of the new;automobile for purposes of computing depreciation?;a. $3,000;b. $9,000;c. $15,000;d. $21,000;e. $24,000;43. Which;of the following statements are correct?;(1.) A sale;is generally a transfer of property for money only or for a promise to pay;money.;(2.) An;exchange is a transfer of property in return for other property or services.;(3.);Recognized gain is always the excess of the amount realized over the adjusted;basis of the property.;(4.);Realized loss is always the excess of the adjusted basis of the property over;the amount realized.;(5.) The;adjusted basis of the property is always the original cost adjusted for such;items as casualty losses, improvements, and depreciation.;a. 1, 2;and 3;b. 1, 2;and 4;c. 1, 3;and 4;d. 1, 4;and 5;e. 2, 3;and 4;44. Which;of the following is not an example of a nontaxable like-kind exchange?;a. Improved;real estate for unimproved real estate.;b. A;printer for a computer.;c. Common;stock of one company exchanged for common stock of another.;d. The;trade of an apartment building for a store building.;e. Real;estate for a ranch.;45. Tom;Tanner traded in a printing press with an adjusted basis of $20,000 for a smaller;press valued at $12,000. In addition to the smaller press, Tom received $3,000;in cash and was relieved of the existing liability on the old press of $5,000.;What is Tom?s recognized gain?;a. $0;b. $3,000;c. $4,800;d. $5,000;e. $8,000;46. Greg Grotto;exchanged an eight-unit apartment building for a four-unit apartment building.;His adjusted basis for the eight-unit building was $320,000 and the fair market;value was $400,000. The fair market value of the four-unit building, which was;subject to a $40,000 mortgage, was $440,000 on the date of the transaction.;What is Greg?s taxable gain?;a. $120,000;b. $80,000;c. $48,000;d. $40,000;e. $0;TRUE-FALSE QUESTIONS?CHAPTER 11;1. Alfred;Ahern sold a truck with an adjusted basis of $6,000 for $1,500 to a salvage;yard. He purchased a;replacement;truck two months later for $24,000. Alfred?s basis in the new truck is $28,500;2. Ed Evans;traded in a large lathe used in his business with an adjusted basis of $7,000;for a smaller lathe;valued at;$8,000. In addition to the smaller lathe, Ed received $2,000 cash. Ed?s;recognized gain is $3,000.;3. Leonard;Longstreet owns a rental building with an adjusted basis of $300,000 and a fair;market value of $280,000. In July 2011, the state condemned the property for a;highway project and paid him $280,000, which he immediately reinvested in a;similar rental property. Leonard may recognize a loss.;4. Melvin;Monroe reads in the newspaper that the state highway department has decided to;take his property for public use. He verifies the news by phoning an official;of the highway department who is involved in the project acquiring this;property. This is a threat of condemnation.;5. Ray;Rambler?s office building with a basis of $75,000 was condemned by the county;which paid him;$120,000 as;compensation. He purchased a new office one year later for $105,000. Ray is;entitled to;postpone;all of the $45,000 realized gain.;CHAPTER 12;1. For;purposes of determining the holding period for property, the holding period;begins on the day the property is acquired and ends on the day before the sale;of the property.;2. On;receipt of a gift of property purchased by the donor in 2006 the basis is;determined by the donor?s basis. The holding period begins on the day the gift;is received.;3. Fully;depreciated property used in a trade or business is a capital asset.;4. Some;examples of capital assets are stocks and bonds held in a personal account, a;personal residence, and household furnishings.;5. Real;property used in a trade or business is a capital asset.;CHAPTER 12;57. Which;of the following is a capital asset?;a. Property;held primarily for sale to customers;b. Accounts;or notes receivable acquired in the ordinary course of business;c.;Machinery and equipment used in a trade or business;d.;Temporary investment of idle business cash in marketable corporate securities;e. Real;property used in a trade or business;58. For;2011, Greg Grammer had a short-term capital loss of $4,000, a short- term;capital gain of $1,900, a short term;capital loss carryover from 2010 of $700, a long-term capital gain of;$800, and a long-term capital loss of $1,000. What is Greg?s deductible loss in;2011?;a. $0;b. $2,560;c. $2,800;d. $2,900;e. $3,000;59. Becky;Best received a long-term capital gain distribution of $350 from her stock in;MXM Corporation. She also had a $4,000;short-term capital gain, a $3,000 long-term capital loss and a short-term;capital loss carryover from 2010 of $1,200. What is Becky?s net capital gain or;(loss)?;a. $150;b. $4,000;c. ($3,000);d. ($4,200);60. For;2011, Steven Sutton had taxable income of $40,000. His stock transactions in;2011 were as follows;Stock Purchased Sold Adjusted;Basis Selling Price;A;8/29/82 1/7/11 $4,000 $6,800;B;6/28/89 8/25/11 3,200 200;C;1/14/11 7/14/11 6,000 4,500;D;2/18/11 12/20/11 7,000 3,000;What is;Steve?s net capital loss for 2011 and his carryover to 2012?;a.;Deduction: $3,000, carryover: $2,700;b.;Deduction: $3,000, carryover: $3,000;c.;Deduction: $5,700, carryover: $3,000;d.;Deduction: $5,700, carryover: $2,700;61. Oscar;Orsen is an officer of Atlas Company. He loaned the company $10,000 but was;unable to collect it because the company went bankrupt a year after the loan;was made. Oscar did not own any stock in the company and the loan was not a;condition of employment. How should Oscar report this loss?;a.;Nondeductible gift;b.;Short-term capital loss;c.;Long-term capital loss;d.;Miscellaneous itemized deduction;e. Business;bad debt;64. Ralph;Rodgers, a calendar year taxpayer, purchased stock on June 18, 2010, for;$8,000. The stock became worthless on June 4, 2011. What is Ralph?s loss in;2011?;a. $8,000;short-term capital loss;b. $8,000;long-term capital loss;c. No loss;d. $8,000;itemized deduction;65. Sam;Shoeman, a calendar year taxpayer, purchased stock in Eaton Corporation on July;12, 2011, for $2,500.;On December;12, 2011, Eaton went bankrupt. What is Sam?s 2011 loss?;a. $2,500;long-term capital loss;b. $2,500;ordinary loss;c. $2,500;short-term capital loss;d. No loss;TRUE-FALSE QUESTIONS?CHAPTER 14;1. An S;corporation is permitted to adopt a Keogh plan or a SEP IRA for its employees.;2. A;deduction to a Keogh plan for the prior year is allowed as long as the plan is;established and the contribution made by the due date of the return (including;extensions).;3. A;deductible IRA would convert tax-exempt municipal bond interest into fully;taxable ordinary income.;4. IRA;distributions may be made with no penalties prior to age 59 ? if;(1.) Made;to a spouse age 59 ? or more, or;(2.) If;actual retirement occurred.;5.;Contributions to defined contribution plans are capped at $220,000;6. If a;qualified pension plan is contributory, the annuitant may use either the;?exclusion ratio? or the ?cost recovery? methods of reporting.;MULTIPLE CHOICE QUESTIONS?CHAPTER 14;24. Moira;Sweeney, age 68 and retired, receives a $5,000 partial distribution from her;401(k) plan. The plan does not pay out an annuity. Immediately before the;distribution, her account balance is $100,000, including $20,000 in;nondeductible contributions. How much of the $5,000 distribution must Moira;include in gross income?;a. $0;b. $1,000;c. $4,000;d. $5,000;25.;Generally, a qualified plan must cover a broad spectrum of employees on a;nondiscriminatory basis.;Specifically;the plan may qualify if it covers at a minimum;a. All;full-time employees who are age 25 and over;b. 70;percent of all nonhighly compensated employees;c. All;full-time employees over age 21 with at least three years of service;d. All;full-time employees earning in excess of the FICA limit;26. The;following statements on vesting are all true, except;a. Vesting;means that the employee has a present nonforfeitable right to enjoy a future;benefit.;b.;Employees are immediately vested in their own contributions.;c. Once a;pension plan is 100 percent vested, the account balance will be paid to a named;beneficiary if the employee dies prior to normal retirement.;d.;Normally, if an employee who is fully vested in a pension plan leaves;employment for any reason, he;receives no;benefits until normal retirement, perhaps decades later.;27. United;Mechanics, Inc. established a qualified 401(k) plan. Scott Meadows, the head;mechanic, was paid a flat salary of $40,000. The maximum employer contribution;deduction allowable with respect to Scott?s account in one year is;a. $10,500;b. $15,500;c. $40,000;d. $10,000;28. For;eligible individuals under age 50 the annual deduction to an IRA is limited to;the following maximum;a. $5,000;or 100 percent of compensation, whichever is less.;b. $2,000;or 25 percent of earned income (net of IRA contribution), whichever is less.;c. The first;$2,250 of earned income.;d. The;lesser of $2,000 or 100 percent of taxable income attributable to earned income.;29. Cathy;Lyons has been receiving a $100 monthly annuity from her qualified plan account;over several years. At the end of the current year, her account balance is;$100,000, including a $20,000 cost basis. In order to satisfy a personal;obligation, she withdraws an extra $5,000 from her account in the current year.;The withdrawal does not affect the amount of her subsequent annuity payments.;How much of the $5,000 distribution is taxable?;a. $0;b. $1,000;c. $4,000;d. $5,000;TRUE-FALSE QUESTIONS?CHAPTER 17;1. Gift;taxes paid on post-1976 gifts are generally allowed as a credit against the;tentative estate tax.;2. For 2011;the first $5,000,000 of the taxable estate is generally tax-free due to the;allowance of a $1,730,800 tax credit.;3. The;estate tax is not levied on tax-exempt municipal bonds.;4. Nine;months before he died Donald Drucker gave $501,000 to his son. The gift is;includible in his gross estate.;5. If the;spouse of the transferor under the Uniform Transfers to Minors Act is the;custodian, the property is includible in the spouse?s estate.;33. Which;of the following retained powers is not an ?incident of ownership? in a life;insurance policy?;a. A power;to use the policy as collateral for loans not to exceed one-half its cash;value.;b. A power;to select a settlement option spelled out in the policy.;c. The power;to cancel a group policy indirectly by resigning a position.;d. A power;to veto a change of benefi ciary after the transfer of the policy to the current;beneficiary.;34. All the;following items are includible in the gross estate of the decedent, John;Palmer, except;a. Gift tax;paid on a gift made by John two years before his death;b. The;proceeds of life insurance on John?s life where all incidents of ownership were;transferred to an;irrevocable;trust 18 months prior to his death;c. The;present value of a joint and survivorship annuity purchased by John?s wife;Frieda;d. Property;subject to John?s testamentary general power of appointment;35. Which;of the following items is not includible in the decedent?s gross estate?;a. A;lump-sum distribution from a qualified profit-sharing plan to decedent?s;daughter who elects fi ve-year forward averaging;b. A gift;of life insurance two years prior to death to decedent?s son;c. Unpaid;dividends when death occurred prior to the record date;d. The;widow?s statutory share of the estate under the State Probate Act (in lieu of;dower);36. The;following is a partial list of relevant items available when fi ling Wilma;Pott?s estate tax return;(1.) Two;years before she died, Wilma sold stocks, now worth $90,000, then $65,000, for;$30,000, to her;son. (2.);Wilma owned a summer house, worth $50,000, in joint tenancy with her sister;Betsy, who paid for it. (3.) Wilma?s home was held in a tenancy by the entirety;with her husband, Wilbur, who paid for it, and is worth $150,000. (4.) Wilma?s;clothes and shoes are worth $800.;From the;above, Wilma?s gross estate includes;a. $75,800;b. $100,800;c. $160,800;d. $800;37. A;number of deductions are allowable from the gross estate. Which of the;following expenditures is;deductible?;a.;Postmortem interest on decedent?s mortgage;b. A casualty;loss sustained by a beneficiary with respect to property distributed from the;estate;c.;Estimated commissions on the planned sale of land owned by the decedent;d. Funeral;expenses;38. Which;of the following taxes are not deductible from the gross estate as a claim;against the estate?;a. Unpaid;gift taxes on gifts made by the decedent;b. Unpaid;state income tax on decedent?s income;c. Assessed;property taxes on hunting lodge jointly held with decedent?s brother, who;purchased it;d.;Assessed, but unpaid, income taxes relating to one of the decedent?s previous;federal tax returns;="#000000">

 

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